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                               ZAPATA CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
 
 Consolidation
 
  The financial statements include Zapata Corporation and its wholly and
majority-owned domestic and foreign subsidiaries (collectively, "Zapata" or the
"Company"). Investments in affiliated companies and joint ventures representing
a 20% to 50% voting interest are accounted for using the equity method, while
interests of less than 20% are accounted for using the cost method, except for
investments in oil and gas properties. All investments in oil and gas
properties and joint ventures are proportionately consolidated. All significant
intercompany accounts and transactions are eliminated in consolidation. Certain
reclassifications of prior year information have been made to conform with the
current year presentation. Additionally, prior year information and footnotes
have been restated to reflect the Company's natural gas compression and natural
gas gathering, processing and marketing operations as discontinued operations.
 
 Inventories
 
  Materials, parts and supplies are stated at average cost. Fish product
inventories are stated at the lower of average cost or market.
 
  The marine protein division allocates costs to production from its fish catch
on a basis of total fish catch and total costs associated with each fishing
season. The marine protein inventory is calculated on a standard cost basis
each month and adjusted to an actual cost basis quarterly. The costs incurred
during the off-season period of January through mid-April are deferred to the
next fishing season (mid-April through December) and allocated to production as
the fish catch is processed. The off-season deferred cost was approximately
$2.2 million and $1.9 million at September 30, 1995 and 1994, respectively.
 
 Investments in unconsolidated affiliates and equity securities
 
  In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. At September 30, 1994, Zapata owned
673,077 shares of Tidewater Inc. ("Tidewater") common stock. These securities
were considered available for sale and reported at fair value with any
unrealized gain or loss recorded as a separate component of stockholders'
equity (net of deferred income taxes). Cost of the Tidewater common stock was
determined on the average cost method. In March 1995, Zapata sold its remaining
shares of Tidewater common stock.
 
  In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne
Industries, Inc. ("Envirodyne"), representing 31% of the then-outstanding
common stock of Envirodyne. Zapata's investment in Envirodyne is accounted for
using the equity method of accounting. Envirodyne is one of the world's major
suppliers of food packaging products and food service supplies.
 
 Investment in Debentures
 
  In May 1995, Zapata acquired $7,000,000 of 13% Wherehouse Entertainment
senior subordinated debentures due August 1, 2002 ("Wherehouse Debentures") for
$3,238,750 plus accrued interest. At September 30, 1995, Zapata's investment in
the Wherehouse Debentures has been written down to its estimated fair market
value of $910,000. The write-down was based on quoted prices of the Wherehouse
Debentures and the current financial condition of Wherehouse Entertainment,
Inc. which is currently operating as a debtor in possession under Chapter 11 of
the U.S. Bankruptcy Code.
 
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